Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Quick Take: Payless Pays Up for Stride Rite

A discount retailer gobbles up a footwear maker.

It's a good day to be a Stride Rite (NYSE:SRR) shareholder. Yesterday, after the market closed, Payless (NYSE:PSS) announced it was acquiring Stride Rite for $20.50 in cash.

The combination is fairly interesting. Payless is best known for its rock-bottom price offerings, while Stride Rite is best known for its Keds, Sperry, and Saucony brands. After the acquisition, the combined company will change its name to Collective Branding and operate with three divisions: the core Payless and Stride Rite businesses and a licensing business for its stable of brands. Each of the units will be run separately and continue to operate out of its current headquarters. This puts revenue growth front and center in the acquisition strategy, with cost savings taking a back seat.

By my estimates, Payless is paying an enterprise value-to-EBITDA multiple of about 11 for Stride Rite. To me that's a bit high, but not entirely unreasonable, given that Stride Rite has premium brands and will give Payless a strong niche in children's footwear to expand from. I wonder if Payless can drive enough growth in other parts of its business from Stride Rite and expand upon the existing Stride Rite business, but discount footwear is tough when you're competing with Target (NYSE:TGT) and other retailers with more resources and scale. Besides, with the market bidding up shares in both companies today, it appears that skeptics are the minority.